SEC Proposes New ESG Disclosures for Funds and Investment Advisers

June 15, 2022

In May 2022, the SEC proposed two form and rule amendments seeking to enhance and standardize disclosures related to ESG factors considered by funds and advisers and to also expand the regulation of the naming of funds with an ESG focus.

The SEC proposal would impact registered investment companies, business development companies (referred to together as "funds") and registered investment advisers and certain exempt reporting advisers.



The proposed changes would amend the rules and forms to:

  • Require specific disclosures on ESG strategies in fund prospectuses, annual reports, and adviser brochures

  • Introduce a standard table for ESG funds to disclose information allowing investors to compare ESG funds quickly

  • Require certain environmentally focused funds to disclose greenhouse gas (GHG) emissions of their portfolio investments; funds that disclose they do not consider GHG emissions as part of their ESG strategy would not be expected to report this metric.


The SEC proposal further identifies three categories to classify ESG funds: Integration Funds, ESG-Focused Funds, and Impact Funds.


Integration Funds

  • These funds integrate both ESG factors and non-ESG factors in their investment decisions such that ESG factors are not considered dispositive

  • These funds would be required to disclose how ESG factors guide their investment process, to avoid overstating the role of ESG factors

  • Integration Funds that consider GHG emissions would be required to disclose how the fund considers GHG emissions, including the methodology and data sources consulted by the fund.


ESG-Focused Funds

  • These funds focus on ESG factors and would be required to submit detailed disclosures

  • Certain funds would be obligated to provide information about their ESG strategies, including any inclusionary or exclusionary screens, and information about the impacts they are pursuing

  • ESG-Focused Funds that have environmentally focused investment strategies would be required to disclose additional information on the GHG emissions associated with

their investments, including the carbon footprint and the weighted average carbon intensity of their portfolio.


Impact Funds

  • A subset of the ESG-Focused Funds pursuing a specific ESG impact

  • These funds would be required to disclose how it measures progress (in qualitative and quantitative terms) and summarize achievements towards its stated ESG goal.




Detailed Guidance on certain KPIs

  • Disclose the percentage of ESG voting matters during the reporting period

  • ESG-focused funds that consider environmental factors have to disclose (i) carbon footprints; and (ii) weighted average carbon intensity (WACI)

  • Scope 3 emissions (Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain) need to be disclosed separately, if available or estimable in a reasonable manner



Proposed Amendments to Form ADV


Part 1A

  • The SEC proposed to amend Part 1A of Form ADV to identify SEC advisers employing ESG strategies, allowing SEC examiners to identify candidates for future examinations to help safeguard against "greenwashing"

  • Since Form ADV is a public filing, this information will also permit the public to better identify advisers providing various levels of ESG strategies

  • Item 5 on Form ADV (separately managed accounts) and Item 7 (private funds) would be amended to require an adviser to report whether it considers ESG factors as part of one or more strategies and, if so, whether that strategy is "ESG Integration," "ESG Focused" or "ESG Impact."

  • Items 6 (description of business) and 7 (financial industry affiliations) would be require that advisers report whether they themselves act as an ESG consultant or have external consultant or service provider.


Part 2A

  • Item 8.D. would require an adviser to disclose ESG factors, if any, it considers for each significant investment strategy and how the adviser incorporates the factors when advising its clients. The adviser would also be required to disclose the criterion or methodology it employs to include or exclude certain securities, including any internal or third-party framework, screen or index

  • Item 10 (other industry activities and affiliations) would require advisers to disclose material relationships they or their control persons have with ESG consultants and service providers

  • Item 17 (proxy voting) would be amended to require advisers with specific voting policies that include ESG considerations to disclose them and how they consider them.



Fund Names Rule ( Rule 35d-1)

  • On May 25, 2022, the SEC approved a proposal to expand the Names Rule to cover funds that suggest they invest in assets that have specific characteristics, such as “growth,” “value,” or one or more environmental, social, or governance (ESG) factors

  • This Rule would curtail the adoption of names that suggest ESG investment strategies by ESG “integration funds.”

  • The proposal would expand the Rule’s 80% investment policy requirement to apply to any fund name containing terms that suggest the fund focuses on investments that have particular characteristics (e.g., “growth,” “value” or terms indicating that the fund’s investment decisions incorporate one or more ESG factors)

  • The proposal would require funds’ prospectus disclosure requirements to define the terms used in its name, including the criteria employed to select the investments described by the term

  • The rule prohibits the use of ESG or similar factors in a fund’s name if the factors do not play a central role in the fund’s strategy (so-called “integration funds”).

About the Author

Jasmeet Sodhi

Jasmeet is an avid researcher and heads growth and marketing strategy development for RADiENT. Jasmeet previously interned at multiple startups where she developed a passion for marketing and content. She holds a Master’s in economics and international affairs from SOAS, University of London and a Bachelors in Economics from Ashoka University. In her free time, Jasmeet enjoys running and reading.

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